AIG turns up some whopping deceptions

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American International Group, the embattled insurance group, said an examination of its operations had turned up additional accounting improprieties going back to 2000 that would reduce its net worth by $US2.7 billion, or $US1 billion ($1.28 billion) more than it had previously estimated.

The company also said the improper transactions or accounting entries, which appeared to have been designed to achieve results "that would enhance measures important to the financial community", in certain cases involved misrepresentations to AIG's regulators and independent auditors as well as some of its own management.

AIG said its internal controls were deficient and that, as a result, its auditor, PricewaterhouseCoopers, would issue an adverse opinion on its internal controls over financial reporting.

AIG has been under a cloud since mid-February, when it disclosed that Eliot Spitzer, the New York attorney-general, had subpoenaed documents relating to its use of a complex type of insurance that can artificially burnish insurers' financial results.

At the centre of the controversy is a $500 million reinsurance contract it entered into with Berkshire Hathaway subsidiary, General Reinsurance.

In March Maurice Greenberg, the former chief executive, resigned shortly before he was scheduled to testify to regulators.

One major problem is insurance transactions that, unusually, carry little transfer of risk. For a company to realise the accounting benefits from insurance, risk must be transferred between an insurer and reinsurer, a company with which it is sharing its potential for losses. But AIG acknowledged that this standard was not met in some transactions, and that the premiums that were previously recorded in the deals will now be accounted for as loans.